Note: This article discusses one or more stocks with a market cap between $350 million and $2 billion. Such small-cap stocks tend to be volatile.
NEW YORK (TheStreet) -- STMicroelectronics (STM) is a semiconductor manufacturer whose shares have seen a strong runup lately based on hype over its MEMS (microelectromechanical components) business and an article in Barrons suggesting it's a Google (GOOG) (GOOGL) takeover candidate.
In reality, Google has absolutely no interest in acquiring STM. Nor should it.
STM is a legacy, high-cost, European company that produces a wide variety of commodity products, and none of its technology is new or sexy. The majority of its business is in automotive parts, something that Google wouldn't want any part of.
What's more, STM has expensive semiconductor fabrication technology and plants, and doesn't have the technological savvy and originality to compete with more nimble pure plays. Except for Motorola, which Google bought for its patents, Google only acquires focused firms that have original, creative, cutting-edge technology.
Google has never acquired a semiconductor company. Even if it wanted STM's MEMS products, given their potential application in wearables, it would be folly to do such a large and complex deal just to gain the few hundred million dollars of revenue from it. The market reaction to another $10 billion technology hardware acquisition in need of extensive restructuring would almost certainly be a negative.
More importantly, STM has proven to be a secular share loser, with declining revenues across most of the segments it competes in.
STM's Mobile Devices Business: Overhyped and Losing Business Quickly
Like many semiconductor darlings, STM has gotten a lot of hype and valuation credit for selling MEMS devices. This includes its devices sold to Apple (AAPL) for the iPhone. These MEMS, including the gyro and accelerometer, measure movement of the mobile device and have received a lot of attention since they enable gaming and other applications.
Well, it turns out STM is losing steam. STM has been losing MEMS market share to Invensense (INVN), which is gaining share with Apple and Samsung at STM's expense. Invensense is a pure play MEMS company with superior technology that's focused on exciting applications like mobile devices.
For the iPhone 5S, Apple designed out STM's accelerometer and replaced it with one from Bosch. STM's other major MEMS device in the iPhone is the gyro. STM has supplied this part from the iPhone 3GS onward.
But an analyst friend conducted a channel check with a source in the iPhone supply chain in Taiwan. That source said that STM will lose the gyro socket in the iPhone 6 coming this fall.
I believe Apple is now buying Invensense's gyro for the iPhone. Since the gyro is a 70-cent to $1 part, that represents a loss of up to $150 million in revenues. More importantly, this also means that STM has lost all its MEMS business at Apple.
This loss of business is coupled with shrinking revenue for the past few years.
Courtesy of White Diamond Research